News

Yesterday, MITRA announced that its wholly-owned subsidiary, Mitrajaya Development SA Proprietary Limited has entered into a Deed of Sale with Scarlet Ribbon Properties 27 (Pty) Ltd for the acquisition of a piece of c.215 acres freehold land in South Africa, for SAR 40.0m (c.RM12.2m), which translates to c.RM1.30 psf. The acquisition is expected to be completed by 2016.

The land is located at Western Suburbs of Pretoria, South Africa, which is in close proximity to the Lansaria Airport and just north of the N14 Highway. It takes about 20 minutes’ drive from Blue Valley Golf & Country Estate via the R562 or R55 roads.

Comments

We were surprised by the acquisition as we expected the group to focus on its existing 300-hectare South Africa project, Blue Valley Gold & Country Estate which the group has ventured into since 1998.

The land acquired is proposed for the development of an Eco Park Residential Estate with at least 1,600 units of medium to high density cluster/apartment homes to be built, with an estimated GDV of SAR1.6b (c.RM497.3m). However, based on our conservative land cost GDV assumption of 15%, we are only expecting a GDV of RM80.0m.

As of 2Q15, MITRA’s net gearing stands at 0.23x and we expect its net gearing to inch up to 0.26x post acquisition of this parcel of land which is still within our comfortable net gearing level of <0.5x.

Based on its historical track record, we expect that the EBIT margin of the development project to easily range between 35%-40% which is largely similar to its other South Africa project, Blue Valley Golf & Country Estate, which yields at average EBIT margin of 38%. While the proposed acquisition of the land is expected to be completed by 1Q16, we do not expect development on that parcel of land to take off in the near term.

Outlook

We reaffirm our positive view that the construction division should be able to sustain at least for the next three years, driven by government’s spending on infrastructure projects and development of affordable housing projects for the next five years under 11MP. Furthermore, the group’s current outstanding orderbook of RM1.55b provides visibility for at least two years.

While its property division will be driven by its Wangsa 9 project (GDV: RM680m) and upcoming project in Puchong Prima (GDV: RM1.5b) by end-2015, we expect some slowdown in the property segment, given the current drag in property sales. However, we believe this should not impact the group significantly, given both projects’ attractive locations, which are adjacent to LRT stations, hence providing convenience and connectivity, are strong selling points.

Forecast

No change to our FY15-16E earnings estimates, as we do not expect that the development for this particular land to take place in the near term.

Rating

Maintain OUTPERFORM

Valuation

Following the proposed acquisition of the South African land, we are keeping our OUTPERFORM recommendation on MITRA with unchanged TP of RM1.63. Our TP implies 7.3x Fwd-PER, which falls at the lower end of the small-mid cap contractors’ Fwd-PER range of 7- 13x. Given that the stock is still trading at single-digit valuation, i.e. FY16E PER of 5.4x, it offers a potential total upside of 37.8%, including dividend yield of 2.1%.

Risksto Our Call

Lower-than-expected margins

Delay in construction works

Lower-than-expected orderbook replenishment

Lower-than-expected property sales

Political changes in property development policy in South Africa

Source: Kenanga Research - 27 Oct 2015